Loyalty Programs and Reward Redemption: A Hot Topic

by: Nichole Gunn May 9, 2011

Employment engagement levels are usually gauged by program activity metrics which consist of participation rates, points earned, levels of reward equity, and their ensuing redemption rates. Analysis of these metrics determines employee engagement/participation in company incentive and loyalty programs.

A hot topic in regard to employee participation in company implemented programs is redemption rates. A problem that arises, or a cause for contention, is breakage, or the value of unclaimed rewards. This breakage can convert into a ‘boost in profits’ for reward programs sponsors (the companies) and third party service providers.

COLLOQUY magazine contributing writer Aline Ostrowski elaborates on the topic, “Redemption is a key driver in sustaining loyalty program participation and brand engagement.” Ostrowski continues to say, “Members who redeem their points and get a reward are more likely to increase program participation, churn at a lower rate, increase spend/frequency, and stay engaged with the program and brand longer.”

which is the catalyst and which is the result? Is redemption driven by engagement, or is engagement driven by redemption? The next question posed is why programs don’t actively and effectively promote redemption.

The answer to the latter question is obvious: financial concern. When points are redeemed, merchandise goes out the door causing the point-liability breakage benefit to decline. But the writer argues that a properly structured program should have a positive financial result – the “highest-value members’ should be earning the most points and redemption should foster enhanced participation. This cause and effect should prompt companies to seek effective point redemption promotion.

Using very successful loyalty program examples, Ostrowski discusses the redemption promotion strategies used to effectively produce results:

The first three examples are: My FedEx Rewards, ThankYou Rewards, and Delta SkyMiles. These programs send regular messages to members informing them of newly available reward options. They also include promotions for redemption specials to enhance member participation.

The next three examples are: Disney Rewards, MyCoke Rewards, and United Airlines Mileage Plus. An effective redemption promotion strategy used by these programs is emails sent to notify members of expiring points. Members are prompted to take action to prevent losing the points: earn additional points or redeem the points.

These loyalty programs effectively sustain and even enhance member engagement in the programs and brands. Keeping members apprised of reward options should be ‘par for the course’ and is just good business. And, informing members of impending expiration of their points is simply being thoughtful. Both strategies help keep the lines of communication open and active.

Click here to read the industry experts’ dialogue and comments to the COLLOQUY article.

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About Nichole Gunn

Nichole Gunn is the VP of Marketing at Incentive Solutions, an Atlanta-based incentive company that delivers advanced, agile B2B customer loyalty and channel sales incentives programs.